Since Dubai’s successful 2020 Expo bid, development of new and re-invigorated construction projects has increased significantly. Tenders and new contracts are once more being awarded for a wide range of infrastructure and development projects across the Emirates. Within those contracts, but often overlooked or not considered properly in the rush of publicity for new projects, are dispute resolution clauses. Choosing sensible and workable ways of resolving disputes has long term benefits for those involved.
The UAE Courts
- The default position in the UAE is to resolve disputes through litigation in the local Arabic Courts. The federal court structure of the UAE provides for a Court of First Instance, Court of Appeal and Court of Cassation (which is the final court). The Emirate of Dubai has its own local court structure independent of the federal courts.
- As a civil law country, there is no doctrine of binding caselaw precedent in the UAE, although court decisions are often considered indicative of the interpretation and application of laws, particularly Court of Cassation judgments.
- Litigation in the UAE carries inherent procedural and evidentiary risks and decisions of the UAE Courts can vary considerably between the Court of First Instance and the Court of Cassation. The language of the UAE Courts is Arabic and therefore local cases and processes can be difficult to follow for non-Arabic speakers.
- In 2004, the Courts of the Dubai International Financial Centre (DIFC) were established. The jurisdiction of the DIFC Courts was originally limited to DIFC matters, for example disputes involving the DIFC, DIFC establishments or where a contract was executed in the DIFC. However, since 2011 parties may elect to resolve disputes in the DIFC Courts even where there is no nexus with the DIFC, provided both parties agree in writing to submit to the Courts' jurisdiction.
- Under UAE law, parties may opt to resolve disputes by way of arbitration and thereby “contract out” of the Courts. Arbitration in the UAE is governed by the Civil Procedure Code which provides for example for the appointment of an arbitral tribunal and the validity of an arbitration award. It has long been contemplated that a new federal arbitration law will update the UAE Civil Procedure Code with a more detailed framework for arbitration. However, to date only a draft has been published.
- Arbitration is often the preferred mechanism of dispute resolution as the inherent risks of litigation in the UAE Courts can be reduced by the careful choice of tribunal members, the applicable language and law, and the institutional rules to be followed by the tribunal and the parties.
- Arbitration is well recognised in the UAE and offers an effective and confidential alternative to Court proceedings. The parties to the dispute can decide on the scope, language, location, rules, arbitrators and timetable. It also provides for a binding resolution to a dispute through its award process.
- An arbitration award must be ratified in the UAE Courts. The Courts are not permitted to re-examine the merits of a case. However, there are a number of procedural grounds on which an award may be struck out, for example where the arbitration agreement does not extend to the subject matter of the award or contains a time limit which has been exceeded.
- The list of procedural grounds to strike out an award is quite extensive. However, it is worth noting that many jurisdictions, and even the 1958 New York Convention on the Enforcement of Foreign Arbitration Awards, contain similar provisions.
- Parties unfamiliar with UAE arbitrations should be cautious, as UAE Courts put considerable emphasis on procedural requirements. Arbitration awards have been overturned for apparently insignificant errors such as failing to swear in a witness using the oath prescribed by law or the tribunal’s failure to fully and properly execute the award.
- It is therefore important when appointing tribunal members (and legal representatives) to ensure they are experienced arbitration practitioners.
Alternatives to litigation and arbitration
- There are alternatives to litigation and arbitration. These are often incorporated into contracts as mandatory preliminary stages of a dispute which ensure all options are exhausted prior to escalating to litigation or arbitration.
- One such example is mediation whereby parties negotiate with the assistance of a third party (the mediator). A mediator does not make an award and has no power to bind the parties.
- Unlike many common law jurisdictions, such as the UK where mediation is entrenched, mediation in the UAE is not generally a recognised or a legally prescribed form of dispute resolution. However, efforts have been made to encourage its use and a number of forums now recognise, encourage and facilitate mediation for example the DIFC-LCIA Arbitration Centre under the rules contained in the LCIA Mediation Procedure.
- There are many advantages to mediation, such as confidentiality, cost effectiveness, speed and commerciality.
- A further alternative is adjudication where a dispute is submitted to a third party or parties (the adjudicators). This process is similar to arbitration. However, it is a quicker and less formal process. The adjudicator will make a decision based on the submissions of the parties. However, it is not enforceable in the UAE Courts as of right and requires enforcement as a stand-alone contractual agreement.
- The introduction of the dispute adjudication board (DAB) into the FIDIC suite of contracts, which are widely used in construction contracts in the UAE, has increased awareness and use of adjudication in the region.
- Careful consideration needs to be given to the wording and form of any dispute resolution clauses that are incorporated into a contract. Failure to properly address dispute resolution during the negotiation of a contract may leave a party frustrated and subject to a long and costly process, in a forum which is neither favourable nor effective for the particular requirements of the project and the parties.
Client Alert 2014-304